NATESAN EKAMBARAM,CHENNAI vs. DCIT CENTRAL CIRCLE 1(2), CHENNAI

Based on the aforesaid information, the case of the assessee was reopened, and the assessment was initially completed u/s.144 r.w.s147 of the Act on 26.03.2022, determining the total income of the assessee at Rs.2,47,64,718/-.

The aforesaid assessment stood rendered redundant in view of the judgment of the Hon’ble Supreme Court in Union of India v. Ashish Agrawal. Pursuant thereto, the AO reopened the case of the assessee to re-do the assessment in accordance with the procedure prescribed under the amended

During the course of the assessment proceedings, the AO observed that the assessee had executed a Power of Attorney in favour of Shri V.R.Anbuvelrajan authorising him to deal with 121 cents of vacant land situated at Survey No.182, Siruseri Village, Thiruporur Taluk, Kancheepuram District. Pursuant thereto, the said Power of Attorney holder executed a registered sale deed dated 14.10.2013 in favour of M/s.Jacaranda Properties Private Limited, conveying 30.35 cents of the aforesaid land for a sale consideration of Rs.1,00,44,000/-.

The AO further noted that, notwithstanding the consideration recorded in the registered instrument, the assessee was in fact in receipt of an aggregate sum of Rs.2,50,00,000/- in connection with the said transfer. Accordingly, the AO issued a show cause notice requiring the assessee to explain as to why the entire amount of Rs.2,50,00,000/- should not be brought to tax as capital gains.

In response, the assessee contended that the subject land constituted "agricultural land" within the meaning of Section 2(14) of the Act, and accordingly no liability to capital gains tax arose on such transfer. The AO, however, did not accept the assessee’s contention. According to the AO that the impugned land constituted a "capital asset" within the meaning of the Act and, therefore, was liable to capital gains taxation. On that basis, the AO computed the long-term capital gains at Rs.2,45,19,108/-, by adopting the entire receipt including the advance for the balance land as sale consideration at Rs.2,50,00,000/-.The relevant findings and observations of the AO are as under: “a) The land was sold by assessee comprised in survey no.182 measuring 121 cents, in Siruseri Village, Thiruporur Taluk, Kancheepuram district vide

The AO, thus completed the assessment u/s.147 of the Act vide order dated 21.03.2023, assessing the total income of the assessee at Rs.2,47,64,718/-.

Aggrieved of the above assessment order, the assessee carried the matter before the ld.CIT(A).

Before the ld.CIT(A), the assessee contended that the entire extent of 121 cents of land constituted agricultural land, relying on various revenue records. On this basis, it was pleaded that the impugned land did not qualify as a capital asset and, therefore, could not be brought to tax. In the alternative, the assessee argued that the entire receipt of Rs.2,50,00,000/- could not be subjected to tax as the sale has been taken place only to the extent of 30.35 cents and further sought exemption of Rs.82,15,610/- on account of reinvestment in a residential house property u/s.54F of the Act. However, the ld.CIT(A), by order dated 25.09.2024, dismissed the assessee’s appeal by observing as under:

Aggrieved by the order of the ld.CIT(A), the assessee preferred the present appeal before us.

The assessee, in Ground No. 1, has challenged the validity and legality of the reopening of the assessment. However, at the time of hearing, the ld.AR of the assessee, upon instructions, submitted that he does not wish to press this ground. The said ground is, therefore, dismissed as not pressed.

The assessee in Ground No.2 has challenged the action of theld.CIT(A) in upholding the finding of the AO that the land of 30.35 cents sold by the assessee during the relevant assessment year constitutes a “capital asset” within the meaning of Section 2(14) of the Act, thereby rendering the same liable to capital gains tax.

The ld.AR, Shri K.Vishva Padmanabhan, CA, submitted that the assessee is primarily an agriculturist, carrying on agricultural activities in ancestral agricultural land situated at Perumbakkam. The said ancestral land was sold during the year 2002, and the proceeds from such sale were invested in the purchase of another parcel of agricultural land admeasuring 121 cents located in Siruseri Village, Thiruporur Taluk, Kancheepuram District (Survey No. 182, part), under a registered sale deed bearing Document No. 3067/2003 dated 2003.

The ld.AR contended that due to the relatively small scale of agricultural operations and the limited economic viability thereof, the assessee and his family members resolved to dispose of the said property. For this purpose, a General Power of Attorney was executed on 09.10.2013 in favour of Shri V.R.Anbuvelrajan, a real estate dealer, authorising him to negotiate and conclude the sale.

It was submitted that Shri V.R.Anbuvelrajan negotiated and agreed upon a total consideration of Rs.2,50,00,000/- for the entire extent of 1 acre and 21 cents. However, during the relevant assessment year, the assessee conveyed only a portion of the said land, measuring 30.35 cents, through the said power agent, in favour of M/s.Jacaranda Properties Private Limited, under Document No. 14250/2013 dated 14.10.2013, for a consideration of Rs.1,00,44,000/-. The Ld.AR emphasised that only the aforesaid portion was transferred during the year under consideration, and consequently, the consideration attributable thereto was restricted to Rs.1,00,44,000/-. The balance amount of Rs.1,50,00,000/- pertained to the remaining extent of land and was received merely as an advance, which has been duly reflected in the assessee’s books of account and disclosed in the return of income filed for the impugned assessment year.

The ld.AR further submitted that the AO erred in classifying the impugned land as “urban vacant land” by placing reliance on Government of Tamil Nadu G.O. No.153, without furnishing a copy of the said Notification to the assessee for rebuttal. It was argued that deduction of tax at source by the purchaser u/s.194-IA of the Act, being a statutory compliance, does not alter the intrinsic character of the land as agricultural. It was further urged that the AO, without appreciating the revenue records produced during assessment, has incorrectly held the impugned land to be non-agricultural in nature.

It was also submitted that the ld.CIT(A), while prima facie accepting that the land is agricultural in nature, nonetheless erred in concluding that it is :-10-: ITA. No:2873/Chny/2024 situated within an “urban area” on the basis of its proximity to Chennai. Reliance was placed on the certificate issued by the Village Administrative Officer (VAO), evidencing that Siruseri continues to be recognised as a village. The ld.AR placed reliance on revenue records of the State Government to contend that the land is situated in a rural area and, therefore, is excluded from the definition of “capital asset” u/s.2(14) of the Act. Accordingly, it was prayed that the addition made by treating the land as a capital asset be deleted.

Per contra, the ld.DRShri C.Siva Kumar, Addl.CIT, submitted that the boundaries of the Greater Chennai Corporation were expanded in 2011, so as to include Semmencherry village within its jurisdiction. The ld.DR submitted that the impugned land at Siruseri is situated within a distance of less than 8 kilometres from Semmencherry, which forms part of the Greater Chennai Corporation. Since the population of the Chennai Corporation exceeds 10 lakhs, the land in question falls squarely within the ambit of Section 2(14)(iii) of the Act as “urban agricultural land” and, therefore, constitutes a capital asset exigible to capital gains tax.

We have heard the rival contentions, perused the orders of the lower authorities, and examined the written submission and paper book placed on record by the ld.AR. The issue that arises for determination is whether the land admeasuring 30.35 cents situated at Survey No. 182, Siruseri Village, Thiruporur Taluk, Kancheepuram District, transferred by the assessee during the impugned assessment year, qualifies as agricultural land excluded from the definition of “capital asset” u/s.2(14) of the Act, or whether it falls within the ambit of urban land taxable as capital asset.

We note that there is no dispute as to the agricultural character of the land in question, nor its location in Siruseri Village. The Revenue’s case rests on the assertion that by virtue of the 2011 expansion of the Greater Chennai Corporation, Semmencherry village was included within the corporation limits, and the distance between Semmencherry and the impugned land is less than 8

We further note that the assessee has not been able to establish, with cogent evidence, that the distance between Siruseri and Semmencherry exceeds 8 kilometres. In the absence of such proof, and having regard to the statutory framework, we are inclined to accept the findings of the Revenue authorities.Accordingly, we hold that the land in question constitutes a “capital asset” within the meaning of Section 2(14) of the Act and that the transfer thereof during the impugned assessment year is liable to capital gains tax. The ground raised by the assessee is, therefore, dismissed.

In the alternative, the assessee, in Ground No.3, has assailed the action of the AO in adopting the sale consideration at Rs.2,50,00,000/- as against the actual sum of Rs.1,00,44,000/- received by the assessee in respect of the transfer of 30.35 cents of land effected during the assessment year under consideration.

In support of the ground of appeal, the ld.AR filed the written submission before us, which is as under:

Per contra, the ld.DR argued that the entire sum of Rs.2,50,00,000/- is taxable in the hands of the assessee on receipt basis and vehemently objected to the prayer of the ld.AR in restricting the sale consideration only to the extent of Rs.1,00,44,000/-.

We have carefully considered the rival submissions advanced on behalf of both the parties. We have perused the assessment order as well as the order of the ld.CIT(A). We have also taken into consideration the written submissions and the paper book placed on record by the ld.AR.

We note that the undisputed facts are that the assessee is the owner of vacant land admeasuring 121 cents situated at Survey No.182, Siruseri Village, Thiruporur Taluk, Kancheepuram District. On 09.10.2013, the assessee executed a registered General Power of Attorney (GPA) in favour of one Shri V.R.Anbuvelrajan authorising him to deal with the said land, including powers of :-13-: ITA. No:2873/Chny/2024 sale, development, and allied rights. A perusal of the said registered GPA clearly reveals that the execution of the power of attorney did not amount to a transfer of ownership or possession of the land in favour of the power agent. It is further noted that no consideration was received by the assessee for execution of the said power of attorney. Hence, by mere execution of the GPA, no transfer of a capital asset within the meaning of section 2(47) of the Act had taken place in favour of Shri V.R.Anbuvelrajan. Moreover, the GPA holder is not the buyer of the vacant land held by the assessee and is only authorised to deal with the prospective buyers.

It is further noted from the record that subsequently, the power agent, Shri V.R.Anbuvelrajan, acting under the authority of the said GPA, executed a registered sale deed dated 14.10.2013 transferring only to the extent of 30.35 cents (out of the total 121 cents) in favour of M/s.Jacaranda Properties Private Limited for a sale consideration of Rs.1,00,44,000/-. It is also not in dispute that the actual transfer of land during the relevant assessment year was restricted only to the said extent of 30.35 cents and the sale consideration received in respect thereof was Rs.1,00,44,000/-. Hence, we find that considering the balance amount as sale consideration for the impugned assessment year by the AO is erroneous.

The AO, however, proceeded on the basis that the assessee had received an amount of Rs.2,50,00,000/- from the power agent, Shri V.R.Anbuvelrajan, and treated the same as the full value of consideration for the transfer of the said 30.35 cents. We note that such conclusion of the AO is not borne out of the material available on record. There is nothing to demonstrate that the said sum of Rs.2,50,00,000/- was received by the assessee from the ultimate purchaser, i.e., M/s. Jacaranda Properties Private Limited. It is equally significant that the AO has not conducted any enquiry either with the power agent or with the purchaser company to ascertain whether any consideration, over and above Rs.1,00,44,000/-, had actually passed hands.

In the absence of cogent material, the mere receipt of funds, if any, from the power agent cannot be equated with the transfer consideration for the impugned sale transaction, particularly when there was no transfer of the capital asset to the power agent himself. The legal position is well settled that unless possession and ownership of the property are transferred in pursuance of a registered instrument, coupled with actual consideration from the purchaser, the same cannot be regarded as “transfer” within the meaning of section 2(47) of the Act.

In the instant case, the recitals of the registered sale deed dated 14.10.2013 clearly indicate that the full value of consideration for the transfer of 30.35 cents of land to M/s.Jacaranda Properties Private Limited is Rs.1,00,44,000/- only. In law, the recitals of a registered document carry greater evidentiary value unless rebutted by cogent evidence, which in the present case is completely absent. On the contrary, the assessee has duly accounted for the differential sum of Rs.1,50,00,000/- as an advance in his books of account, which is also duly reflected in the return of income filed for the relevant year under the head “liabilities”. Thus, the assessee’s stand remains consistent both in books as well as before the authorities.

Having regard to the totality of facts and circumstances, we are of the considered opinion that the AO erred in adopting the figure of Rs.2,50,00,000/- as the sale consideration for the transfer of 30.35 cents of land. The correct figure of sale consideration, as evidenced by the registered sale deed and corroborated by books of account, is only Rs.1,00,44,000/-. In view of the above, we direct the AO to recompute the long-term capital gains by adopting Rs.1,00,44,000/- as the full value of consideration. Consequently, the addition of Rs.1,49,56,000/- (Rs.2,50,00,000/- less Rs.1,00,44,000/-) made by the AO is hereby deleted.In the result, the ground raised by the assessee on this issue stands allowed.

In Ground No.4, the assessee has assailed the taxability of the entire sale consideration in his individual hands on the plea that the impugned land was acquired out of ancestral property, and consequently, he is under a legal obligation to distribute the sale consideration among the respective family members. However, during the course of hearing, the ld.AR failed to furnish any cogent or corroborative evidence in support of the said contention. In the absence of substantiating material, we are not inclined to accept this ground. Accordingly, Ground No. 4 raised by the assessee stands dismissed.

The assessee in Ground No.5 has assailed the action of theld.CIT(A) in denying the benefit of exemption u/s.54F of the Act amounting to Rs.82,15,610/-claimed on account of reinvestment in a residential house property. It is noted that the assessee had claimed exemption u/s.54F of the Act before the ld.CIT(A) also, who admitted the said claim for consideration. However, the ld.CIT(A), upon examination, declined to allow the exemption u/s.54F of the Act on the ground that the evidentiary documents produced in support of the construction expenses were merely on plain paper. The ld.CIT(A), therefore, rejected the claim of the assessee.

The ld.AR, furnished the written submission before us which is as under: “It is most respectfully submitted that the assessee had reinvested the sale consideration in the construction of a residential house. Accordingly, an alternate claim for exemption of Rs.82,15,610/- u/s.54F of the Act was made before the Ld. CIT(A). The Ld. CIT(A), however, rejected the claim merely on the ground that certain bills were printed on plain paper. Apart from this observation, the Ld. CIT(A) has not pointed out any discrepancy in the claim made by the assessee. During the course of hearing on 19.08.2025, it was specifically submitted that the reinvestment was made out of the sale consideration received on account of the transfer of the impugned land. In this regard, the Hon’ble Bench was pleased to direct the assessee to furnish the relevant bank account statements evidencing the receipts of sale consideration and the subsequent payments/transfers towards construction. In compliance with the directions of the Hon’ble Bench, copies of the bank account statements maintained with UCO Bank and City Union Bank are enclosed herewith as Annexures – 3 & 4, respectively.

We have carefully considered the rival submissions advanced on behalf of both the parties. We have perused the assessment order as well as the order of the ld.CIT(A). We have also taken into consideration the written submissions and the paper book placed on record by the ld.AR.

We observe at the outset that it is not the case of the Revenue that the assessee is otherwise ineligible for exemption u/s.54F of the Act. The only point of dispute raised by theld.CIT(A) pertains to the nature of evidence furnished by the assessee, particularly the construction bills, which were produced on plain paper and, according to the ld.CIT(A), lacked proper supporting documentation.On careful examination of the material placed on record, it is evident that the assessee had in fact undertaken construction of a residential property and had incurred substantial expenditure towards the said construction out of the sale consideration received. The lower authorities ought to have undertaken a proper verification of the assessee’s bank account statements in order to ascertain whether the expenditure claimed was actually incurred.

Upon perusal of the assessee’s bank account statements, we note that there are significant cash withdrawals as well as payments made towards construction. These entries provide corroborative evidence that the assessee did not merely make a paper claim of exemption u/s.54F of the Act, but had indeed expended monies towards the construction of the residential property.It is therefore not a case where the assessee has sought to avail exemption u/s.54F of the Act without incurring any real or tangible cost. When sufficient bank transactionscomprising both withdrawals and paymentsare demonstrably available in support of the claim, the exemption cannot be disallowed solely on :-17-: ITA. No:2873/Chny/2024 the ground that the supporting vouchers or bills are on plain paper or not in the preferred form. Substance must prevail over form, particularly when the evidence otherwise substantiates the incurring of expenditure for the purposes envisaged u/s.54F of the Act.

In the peculiar facts and circumstances of the case, we are of the considered view that the assessee is entitled for exemption u/s.54F of the Act in respect of the investment made towards construction of a residential house, aggregating to a sum of Rs.82,15,610/-. The AO is directed to grant exemption u/s.54F of the Act for the said sum and to recompute the long-term capital gains chargeable to tax after giving effect to the same.In the result, the ground of appeal raised by the assessee on this issue stands allowed.

In view of the foregoing, to make it clear, we direct the AO to adopt the sale consideration at Rs.1,00,44,000/- instead of Rs.2,50,00,000/- for the purpose of computing the taxable long-term capital gains. Further, the AO is directed to compute the long-term capital gain after allowing the exemption u/s.54F of the Act considering the investment of Rs.82,15,610/- made towards house property by the assessee.

In the result, the appeal of the assessee is partly allowed.